Chen Guoqing: Domestic electrical steel market is hard to recover in April

Asian Metal: Could you give us a brief introduction of your company?

Chen: Posco China Guangdong Steel Co., Ltd. is a joint venture enterprise co-founded in 1997 by POSCO and Beijiao Shunde Investment Co., Ltd. Our enterprise covers an area of 58,000 square meters and has 220 employees. The registered capital is 29.69 million USD.

We have two mills at this moment and we produce silicon steel and PPGI. The annual capacity of silicon steel and PPGI are 300,000t and 50,000t respectively. Our products are mainly sold to Guangdong Province and other southern Provinces.

Asian Metal: Compared with products from other mills, what is the advantage of your products?

Chen: Compared with products from other mills, our products have lower core losses and uniform thickness. In addition, our company is located in Guangdong Province, where the development of electronics industry is relatively prosperous. Therefore, we can provide prompt after-sales service to our customers. We also have technical support from POSCO in Korea and we can make some sophisticated products according to customers’ needs.

Asian Metal: The year 2012 was a very hard year for electrical steel producers. What strategies did you take to deal with the harsh situation?

Chen: First of all, we cut the production cost, improve the production efficiency and enhance resource utilization. We also adopted the “6S” measures in managing our employees. Secondly, we put more energy to strengthen the relationship with customers. For example, our connections with Samsung - the world famous Korean enterprise became closer last year. And we established cooperation with some Chinese domestic electronic enterprises, like Midea. Thirdly, to avoid risks, we have decreased the inventory of silicon steel to a low level and we usually begin to arrange production after receiving orders.

Asian Metal: After the Spring Festival was over, the silicon steel market didn’t turn better as expected. What is the reason for that?

Chen: Some reasons contributed to this phenomenon. Firstly, many downstream buyers started to preserve stocks as early as October, which means they still have many un-used materials after the Spring Festival. Secondly, many electrical machine producers didn’t start the production until March, while steel mills’ outputs have been kept at a regular level. As a result, oversupply became increasingly serious with time goes on. Thirdly, market prices of electrical steel have been increasing since December last year, so prices in March were at a high level. Buyers were unwilling to order materials seeing higher market prices. At last, since the bank’s credit policy was tight, downstream buyers didn’t have much spare funds to place large orders.

Asian Metal: What is the most influential factor of silicon steel prices at this moment?

Chen: The most influential factor is steel mills’ capacity. According to my research, the total output of electrical steel in 2011 was 6.2 million tons, while it increased to 6.58 million tons in 2012. This year, Masteel and Shougang Steel both planed to increase the output of electrical steel by 200,000t, and Shagang Steel considered producing 1 million tons of electrical steel this year. We can see that oversupply is becoming more and more serious. And because of it, the profit margin of electrical steel keeps shrinking. In former years, the average profit of electrical steel is RMB500/t, while the current rate of profit is only 2-3%.

Asian Metal: Baosteel hiked list prices of silicon steel for April production greatly, while Ansteel and Shougang Steel both kept ex-works prices unchanged. What do you think of this phenomenon?

Chen: As far as I know, the profit margin of electrical steel from Baosteel is quiet slim, so the mill doesn’t focus on this product. It prefers to apply the limited amount of molten iron to the production of automobile steel, which has higher profit margin. I think Baosteel wants to control the output of electrical steel and reduces agents’ purchasing quantities by increasing the ex-works prices. As for Ansteel and Shougang Steel, their inventories of electrical steel are large, but the received order is insufficient. While, the production cost of electrical steel in February was high because the iron ore was purchased in December last year with more expensive prices. As a result, they kept quotations unchanged for April production.

Asian Metal: What is your opinion of the price trend of silicon steel in April?

Chen: I personally believe prices of electrical steel are hard to go up in April. First of all, April is not a peak season for downstream electronics industry, so demand is unlikely to rebound greatly. Furthermore, current market prices of electrical steel are relatively high, and buyers are unwilling to place orders at this moment. Moreover, for some traders, their stocks were purchased months ago with lower cost, and they can still get some profits at current quotations. At last, the operation rate of steel mills’ production lines is 80% at this moment, which is high enough to exacerbate oversupply situation. In conclusion, I don’t think the overall market condition is favorable for prices to go up in April.

Asian Metal: We all know that electrical steel is closely connected with the electronics industry. Could you give us a brief account of the current situation of electronics industry?

Chen: In the first quarter of this year, domestic electronic industry runs smoothly boosted by the increasing demand for home appliance. However, the export market is unpromising affected by the dim global economic situation. In addition, I heard that new home energy rating system will be put into effect after June 1, which means air-conditioner with high energy consumption will be phased out of the market gradually. Consequently, many downstream home appliance producers will have to purchase new electrical steel to manufacture energy-saving ones. For us, it is an opportunity.

Asian Metal: What is your strategic plan this year?

Chen: We will do from the following three aspects. Firstly, we will strengthen our relationship with Korean-invested companies in China. Secondly, we will develop new Chinese customers like Midea and Gree. Thirdly, we will do some R&D works on new electrical steel products which can be applied on the production of micro motor. The market prospect for micro motor is bright and we should pay more attention to this field.